City Offers Longer Airport Leases For $700 Million and More Rent

By MICHAEL COOPER

Published: October 16, 2003

Ending a feud that has lasted nearly a decade, Mayor Michael R. Bloomberg announced yesterday that New York City would extend its lease of La Guardia and Kennedy Airports to the Port Authority of New York and New Jersey until 2050 in exchange for a $700 million upfront payment and a steep increase in annual rents.

The agreement formally ended talks of a so-called land swap in which the city was to have traded the land under the two airports, which it owns, to the Port Authority in exchange for the World Trade Center site, which the authority owns. The city had proposed the trade to win more control over the rebuilding of the site.

The deal would erase what many fiscal monitors warned was a large risk to the city's financial health, by ensuring that the city would get the hundreds of millions of dollars in extra lease payments that it has been counting on to balance its budgets this year and next.

Gov. George E. Pataki, who has been at odds with city officials over aid to the city, helped broker the deal, which is a way to get the city money without costing the state.

For years, the city and the Port Authority have argued over how much the city should get in rent for the airports. Under the current agreement, which was set to expire in 2015, the city has received as little as $3.5 million a year.

The new deal would raise the rent to $93.5 million a year, or 8 percent of gross revenues, whichever was greater, to ensure that the deal remained fair over the next half-century.

In exchange, the Port Authority would get to extend its lease until 2050, allowing it to issue long-term debt for capital projects and to attract private investment to the airport, especially by airlines and companies seeking to build terminals.

The deal is subject to approval by the Port Authority's board of commissioners, half of whom are appointed by Gov. James E. McGreevey of New Jersey. New Jersey officials said they would review the plan in coming weeks, and one official there expressed concerns about some aspects of the agreement.

The deal also dictates the amount of money the city would get each year from the Port Authority for the World Trade Center site instead of property taxes. Because the site is owned by a public authority, the city cannot collect property taxes; instead, it negotiates annual payments in their place. Under the terms of the deal, those payments would begin at $14 million a year and grow to $55 million annually when the site is fully developed.

That is more than the city used to get -- in 2001 the city collected about $30 million in such payments, officials said -- but less than the city would stand to collect if the site were privately held. City officials have estimated in the past that the site could generate as much as $100 million a year in property taxes if it were owned privately.

The announcement -- which was made by Mayor Bloomberg, Governor Pataki and other city and Port Authority officials in the Art Deco-style Marine Air Terminal at La Guardia Airport -- appeared to end years of bitter debates, public wrangling and legal battles.

The administration of former Mayor Rudolph W. Giuliani fought for years to renegotiate the lease, trying to take control of the airports from the Port Authority and complaining that the authority used revenues from the airports to subsidize projects in New Jersey. At one point, Mr. Giuliani called Kennedy and La Guardia ''two of the worst airports in America.''

Mayor Bloomberg called yesterday's agreement a sign that the relationship between the city and the Port Authority was mending.

''In the past, the relationships between the city and the Port Authority have been strained,'' he said. ''But I think the tragedy of 9/11 really brought us together and provided the opportunity for a fresh start, good for all New Yorkers and the people from New Jersey as well.''

Deputy Mayor Daniel L. Doctoroff, who had been a proponent of the land swap idea, said yesterday that the city felt much more comfortable with its level of say in the redevelopment plans, and that it no longer felt the need to win control of the site. He said that discussions over the swap ''to some extent led to this deal.''

Under the deal, the city would also get $50 million in Port Authority money for capital improvements in Queens, seats on a newly created Airport Board that will oversee the operations of the airport and the right to audit the airports.

The Port Authority also agreed to spend $90 million to study the feasibility of rail links between Lower Manhattan and both Kennedy and Newark Liberty International Airports, and to commit up to $500 million for the construction of each project if they are deemed feasible.

Michael R. DeCotiis, the chief counsel to Governor McGreevey, said that New Jersey officials would review the details of the plan for the next few weeks.

One New Jersey official expressed ''serious reservations'' about the money that would be spent studying and then building the rail links, especially the link to Kennedy.

The official questioned why New Jersey would want to subsidize a train link from Lower Manhattan to Queens. ''We're not sure that's the wisest use of those funds,'' the official said, speaking on the condition of anonymity.

Still, New York and Port Authority officials appeared confident that the deal would be approved.

Governor Pataki offered in January to get the city $500 million in back rent for the airports, but city officials responded coolly to the proposal, saying that they believed the city was owed more money.

After that, the governor proposed a state budget that would have hurt, not helped, the city, leading the city to broker a deal with the State Legislature, which passed an alternate budget over the governor's veto. The governor continues to object to part of the legislature's deal, which would save the city $500 million a year by having the state take over the city's remaining debt from the 1970's. He sued to block that deal.

''There are going to be occasional differences, but it doesn't change the fact that the mayor and I are both committed to having as close a working relationship, where we work to solve mutually the problems of the city and the state every day,'' Mr. Pataki said.

The airport deal was widely praised by city and state officials.

State Comptroller Alan G. Hevesi, a Democrat, congratulated the governor and the mayor, both Republicans, for reaching a deal that he called ''good for the city, good for the airports, and therefore good for the entire state.''

The Pataki administration said the deal would net the city ''a minimum of $5 billion'' through 2050. The city would collect the $700 million payment as soon as the deal is finalized.

That $700 million would not do much to help the city close an expected $2 billion budget gap next year, but it would make sure that the gap did not widen.

The budget the city passed in June counts on receiving $200 million in extra lease payments this year, and $583 million in such payments next year, for a total of $783 million by next year. The deal would provide a bit more than the city was counting on.

For years, city administrations have been counting on extra money from the airport leases in their budgets, and not getting it.

Budget monitors said that the deal would vastly improve the city's fiscal outlook, by removing what they saw as a risk.

''This eliminates one of the big risks that we saw,'' the city comptroller, William C. Thompson Jr., said.

Photo: A deal to extend the lease of New York City's airports was announced yesterday by Gov. George E. Pataki, center; Mayor Michael R. Bloomberg and Helen M. Marshall, the borough president of Queens. (Photo by Richard Lee for The New York Times)(pg. B6)